Start Winning Big On Sportsbet – If you can’t get through a football game or scroll through Twitter without seeing an in-your-face promo for online sports betting, you’re not alone.
As sportsbooks continue to ignore the prospect of free money in hopes of gaining a customer base, offers such as “$20 if Aaron Rodgers throws a passing yard, win $125” or “keep your first bet up to $500 risk-free” have become ubiquitous.
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The offerings have exploded as a pandemic-weary public has proved a perfect target for betting startups, many of which are rushing to exploit lax state regulations on betting. “Throughout the pandemic, there has been a definite increase in mental-health issues and addiction,” says Eric Fields, a psychologist who specializes in addiction treatment. “It’s a very vulnerable time for people who already have an addiction or mental health problem, and people who don’t have it are now at risk of developing it. Staying at home all that time has this kind of sensitivity to people who are looking for a short-term fix, something instant gratification.”
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Estimated to generate between $7 billion and $8 billion in annual revenue by 2025, the US legal sports betting market already generated more than $900 million in revenue in 2019, with less than half of states legalizing the practice. Chris Grove of research firm Eilers & Krejcik Gaming said sportsbooks pay hundreds of dollars in customer acquisition costs in hopes of achieving lifetime values of more than a thousand dollars per customer.
Currently, 25 states and Washington, D.C. have passed bills legalizing sports betting, with Louisiana, Maryland and South Dakota joining this election cycle after passing ballot initiatives, according to the American Gaming Association. Some top players like DraftKings, FanDuel, and more established casino gambling operators William Hill and BetMGM have taken a significant lead, but that hasn’t stopped others—there are currently more than 15 operators in New Jersey—from closing in on an already crowded field. Thus, as operators look to profit margins, sponsoring these free-bets and odds-enhancing campaigns may ultimately be a futile attempt to capture a piece of the multibillion-dollar mobile gambling market.
At least 10 Premier League club football teams have branding company sponsors on their uniforms. Including Burnley.
“In terms of free bets and promotional intensity, it’s almost a race to the bottom,” said Daniel Stone, head of data for gambling industry intelligence firm Vixio Gambling Compliance. “Even if DraftKings wants to step back and be a little more conservative, they’re at the forefront of what their competitors are doing. If Barstool comes to Pennsylvania all guns blazing, free bets and very liberal, if the NFL season starts now, it’s going to be hard to turn off FanDual and DraftKings.”
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Stone specifically mentions DraftKings and FanDuel because they are two of the biggest players in the market and have been for some time. Before the U.S. Supreme Court struck down a federal law banning sports betting in May 2018, DraftKings and FanDuel rose to prominence thanks to their daily fantasy sports offerings. Once states began legalizing mobile sports betting, DraftKings and FanDuel already had access to a user base that other competitors lacked.
New England Patriots cornerback Stephen Gilmore (24) on Oct. 22, 2020 in Foxborough, Mass. During a New England Patriots practice session.
“DraftKings and FanDuel have really established this leadership based on this huge, ready-made DFS user base that’s ready to be sold out there,” Stone said. “They’ve also been able to build large sports betting businesses with far less customer acquisition than MGM or Caesars, starting from a standing start, trying to cross-sell older slot players to their databases in Indiana or Illinois, which aren’t ideal for sports betting.”
Starting with a large active user base doesn’t mean DraftKings or FanDuel is profitable. DraftKings reported operating losses in 2018 and 2019, and the pandemic disruption to the sports season certainly didn’t help matters, with the company failing to turn a profit again in the first six months of 2020. FanDuel, despite 45% year-over-year revenue growth in 2019, lost money last year. Revenues will increase as more states continue to legalize the practice, but betting operators must still fend off new competitors with massive marketing and promotional campaigns and invest in product improvements and staff growth.
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“Right now, we’re in a massive growth mode,” said Mike Raffensperger, FanDual’s CMO. “We are investing in launching in new states, the key is to get more customers and get them to try our products. So, ultimately, in these early stages, we invest more than we do from a revenue perspective.”
While established players such as FanDuel, DraftKings, BetMGM, William Hill and BetRivers vie for market share, there is a flurry of competition from new entrants. Penn National Gaming-owned PointsBet and Barstool Sports are just two of the latest companies to try to get in on the action, and have rolled out their own promos as they enter new states. The barstool in particular caught Stone’s attention. “Their audience is perfect for cross-selling into sports betting,” Stone said. “I know there will be people under 21, but these are young, sports-minded people who are already into sports betting. Their success in other areas is a testament to their investment in the Barstool brand. They feel like they have this captive and ready audience to engage effectively in sports betting.”
Fanduel was the primary sponsor of the Legends Classic tournament between the LSU Tigers and the North Carolina State Wolfpack on November 24, 2015 at the Barclays Center in Brooklyn.
According to the American Gaming Association and Stone, of all money wagered at legal sportsbooks, operators keep only 5% to 7% as revenue, before paying regulatory fees and taxes that exceed 50% of revenue in some states. Employee salaries, overhead and marketing costs – which Vixio says can make up more than 50% of total revenue – and online sports gambling are not a money-making business at this point.
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In fact, DraftKings recently reported $133 million in Q3 revenue — good enough for a 98% increase over the same period last year. However, the company’s sales and marketing expenses increased to $203 million in the same quarter as it spent on deals with the Chicago Cubs, MLB, ESPN, the New York Giants and Michael Jordan. Such spending allowed DraftKings’ customer base — measured in monthly unique payers — to grow 64% in Q3 and signaled that profitability may still be down.
“Right now, it’s all about cost growth, and market share seems to be all about cost,” Stone said. “People don’t care about losing money — DraftKing is still losing this eye-watering valuation. It’s not about rational cost control; people want to be one of those winners in four or five years. Maybe, from that point on, the focus will be on cost control and profitability.”
Now, the emphasis is on becoming one of those “winners.” If Stone is right, and the US sports betting market mirrors the more forward-looking UK, there will be five to six bookmakers if they achieve 10% market share. There are more than six players in the market right now, which means there will be a lot of losers.
The New York Rangers and St. Louis Blues skate in front of a Dasher board advertising betting website DraftKings on November 12, 2015 at Madison Square Garden.
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FanDuel, for example, offers some previously unheard of ideas like refundable “same game parlays” and crowdfunded sports bets. Both of those propositions, if you’re not familiar with them, work to completely reduce risk while keeping the rate of return (or probability) intact.
“We are investing in launching in new states to get more customers to try our products,” Raffensperger said. “Fundamentally, we want to be generous with our customers and make sports betting fun. We believe in the long run, and we’ve seen it in our numbers and market share reports, generosity drives retention and loyalty.”
It certainly pays off—in some cases up to $2,000 in lifetime value for the average customer, according to Stone. Although that number is attractive to gambling operators for obvious reasons (it’s the primary driver of the current hype).